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  • Paul Adams: Macro Trumps Micro In Resource Sector

    Investors in Australia's junior mining sector are feeling the same pain as those in North America but Paul Adams, an analyst with brokerage firm DJ Carmichael in Perth, believes select junior resource companies will outperform the broad markets as macro-level events impact certain commodities. In this interview with The Gold Report, Adams suggests that strong demand fundamentals in nickel, zinc and uranium could mean better years ahead for equities with exposure to those commodities. Adams also discusses DJ Carmichael's new investment strategy.

    The Gold Report: Mining in Australia is dominated by coal and iron ore production, much of which is controlled by large players like BHP Billiton Ltd. (NYSE:BHP) and Rio Tinto Plc (NYSE:RIO). Please give our readers an overview of the state of the junior mining sector there.

    Paul Adams: Like many companies in the junior space in North America, and Canada in particular, junior miners in Australia have suffered from the downturn in commodity markets. Here in Western Australia, the fall in the iron ore price has not only affected the large miners, it's affected the juniors even more. Some miners have already ceased production at high-cost operations. Many jobs have been cut in both large and small mining companies and in the service companies that supply them.

    A general feeling of gloom hangs over Western Australia, even though 2013 and 2014 have been relatively good years for the general market. It's certainly a different story for many of the small- to mid-cap miners, especially the exploration companies. Since Aug. 19, the Small Resources Index has fallen to 1,786 from 2,340-a decline of 23.6%. I dare say it's going to be hard for many companies in this sector for a while yet.

    TGR: Where is the light in that tunnel? Is there investor sentiment that sees the value at these levels?

    PA: There is obviously value in the market. The institutions are starting to talk resources again. It's a question of timing. The markets need to feel more settled. The CBOE Volatility Index [VIX] recently rose above 30. That definitely affected the mood of fund managers and their willingness to enter this sector.

    TGR: Are some commodities seeing increased investor interest despite market conditions?

    PA: Yes. There are good prospects for nickel and zinc. From a fundamental supply and demand point of view, the scales are likely to be tipped in the favor of price rises in 2015-2016. In precious metals, the rise of the U.S. economy and the American dollar has meant a fall in our Australian dollar. The gold price in Australian dollars has cushioned our domestic gold producers. That has helped but there's still too much uncertainty.

    Another commodity with good prospects is uranium. The general consensus is that we've seen the bottom in the spot uranium market and we ought to see much more activity in that commodity in first half of 2015, especially if Japanese nuclear reactors come back on-line.

    TGR: For mined commodities, no other country in the world feels the impact of Chinese demand greater than Australia. Where is Chinese investment in all of this?

    PA: I don't think Chinese interest in Australian commodities has waned. As assets become distressed as commodity prices fall, we see Chinese companies still taking a keen interest in Australian assets. We don't really see that waning.

    TGR: At the end of 2013 you stopped covering a number of companies. Was that part of a yearly purge or was there more to it?

    PA: Sometimes things don't work out in the mining exploration business. That's exploration, but we've also undertaken a deliberate change in strategy to focus on higher market-cap, high-growth companies with liquidity that are either in production or quite close. We have become more choosey when it comes to where companies are in their lifecycle, but that's not to say that we've completely moved away from small explorers. But the conviction on the assets has to match the increased market sector risk.

    TGR: Is that basically the outline of your investment thesis?

    PA: The macro trumps the micro in the resource sector. From oil and gas through diamonds and everything in between, we've seen the effect of the macro on our markets. That 23% fall in the Small Resources Index indicates that. Going forward we have to make sure that the supply/demand fundamentals for a specific commodity make sense. If the fundamentals make sense, we would be much more willing to look at a small company that has exposure to that commodity.

    TGR: Australia's conservative government, headed by Prime Minister Tony Abbott, repealed the mining or "Super Profits Tax" on Oct. 1. Will investors notice the difference?

    PA: The tax did not raise anywhere near the revenue that it was expected to. I suppose its repeal has taken away some negativity toward investment in the sector. We're better off without it but I don't think it will necessarily change the view of Australia as an investment destination. Australia is always going to be seen as a relatively safe jurisdiction for mining projects.

    TGR: What are the three or four things you look for in junior mining equities in this market?

    PA: We look at management teams and their delivery on expectations. We'd much rather work with a management team with a track record in promising just enough to garner sufficient investor interest and then over-delivering. Nobody likes surprises but we can all live with a surprise or two on the upside. I love going back to our clients and saying, "I was a bit wrong on that, it actually turned out to be better than we thought it would be." That's a really important point.

    Second, we definitely want to see that the asset could turn into a profitable mining operation. Our best calls have occurred when we identified those opportunities as early as possible. Then we try and stick with a company over a number of years as it realizes its vision.

    The timing in the lifecycle of a company is very important. Investor interest in long-dated, capital-intensive projects is just not there. But if there's a company with a short-dated timeline to production where an obvious value uplift should occur, then that's a much better position in these markets.

    TGR: Do you think brokerages in general no longer form sufficiently long relationships with these companies?

    PA: That's an interesting question. Our model has been to identify-probably sooner than most-companies with really good assets. Obviously, you're going to get investors with different risk profiles and some will want to take some money off the table on a successful exploration event, for instance. If you can afford to have a long-term investment horizon, you often form good relationships with the companies involved and help them through their lifecycle. We've always tried to establish those relationships early on. And as long as the asset keeps delivering, we keep supporting those companies.

    TGR: What are some companies that you're covering with projects outside Australia?

    PA: Last time we spoke I mentioned Kingsrose Mining Ltd. (OTCPK:KGRSY) [KRM:ASX], which had a terrible year after its gold-silver mine went offline. Interestingly, Kingsrose's share price remained relatively stable at around A$0.35, whereas many other gold companies took bigger hits.

    The company just released the results from the September quarter. In July, Kingsrose received a forestry permit that allowed the company to reestablish production at its Talang Santo mine in eastern Sumatra. The company had a reasonably good quarter given that it is in ramp-up mode and treating mostly stockpiled and development ore. Kingsrose produced roughly 6,000 ounces [6 Koz] gold and 23 Koz silver at a grade of almost 10 grams per ton. I had anticipated high cash costs given that the company was in ramp-up mode and spending a lot on development. Cash costs came in at US$660/oz and all-in sustaining cash costs of just under US$1,000/oz.

    The mine development capital costs pushed the all-in costs up slightly because Kingsrose needs to develop along its narrow, high-grade veins. That was very positive considering the company is reinitiating production.

    TGR: The biggest red flag with Kingsrose is that it's operating in Sumatra, Indonesia. Should investors be concerned?

    PA: It's not for everybody. Institutions have a view one way or the other on Indonesia. Some will look at it and some won't. Indonesia has a lengthy mining history. Many companies operate there and the new government is pro-business. For us, it doesn't represent a big risk.

    TGR: We're getting close to the end of 2014. What's your general outlook for the junior sector in 2015?

    PA: It's still going to be quite hard, but certain commodities are going to do better than others. This comes down to what your views are on the macro. For instance, the supply/demand fundamentals for nickel suggest that nickel prices should start to rise as Chinese stockpiles of Indonesian nickel ore get depleted. That means in 2015 nickel companies should perform better than they have in recent years. We're also likely to see zinc producers and developers outperform their peers in other commodities as several large zinc mines shut down.

    Overall, we're not out of the woods, but we're always hopeful that the next year will be better.

    TGR: Thank you for your insights, Paul.

    This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.

    Paul Adams is a geologist and head of research at DJ Carmichael. He has 16 years of experience in the mining industry, in Australia and elsewhere, and was previously chief geologist and evaluations manager at Placer Dome's Granny Smith mine. He is a member of the Australian Institute of Mining and Metallurgy and has a Graduate Diploma in Applied Finance and Investment from the Financial Services Institute of Australasia.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) Paul Adams: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    3) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

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    Nov 03 2:59 PM | Link | Comment!
  • Bob Moriarty: Flock Of Black Swans Points To Imminent Stock Market Crash

    Between a rising U.S. Dollar Index and black swan events around the world, it's looking like bunker time for Bob Moriarty. In his latest interview with The Gold Report, the 321gold.com founder delivers a frank overview of U.S. international policy and lambasts commentators who look to their tea leaves in search of the next market moves. But it's not all gloom and doom: Moriarty also discusses metals companies with "no-lose deals," where resource investors can take advantage of more than favorable odds.

    The Gold Report: Bob, in our last interview in February, we had currency devaluation in Argentina and Venezuela. We had interest rate hikes in Turkey and South America. We had a cotton and federal bond-buying program. Just eight months later in October, we've got Ebola. We've got ISIS. We've got Russia annexing Crimea. We've got a rising U.S. Dollar Index. We've got pullbacks in gold, silver and pretty much all commodity prices. With all this news, what, in your view, should people really be focusing in on?

    Bob Moriarty: There is a flock of black swans overhead, any one of which could be catastrophic. The fundamental problems with the world's debt crisis and banking crisis have never been solved. The fundamental issues with the euro have never been solved. The world is a lot closer to the edge of the cliff today than it was back in February.

    About ISIS, I think I was six years old when my parents pointed out a hornet's nest. They said, "Whatever you do, don't swat the hornets' nest." Of course, being six years old, I took stick and went up there and swatted the hornets' nest, which really pissed off the hornets. I learned my lesson.

    We swatted the hornets' nest when we invaded Iraq and Afghanistan. What we did is we empowered every religious fruitcake in the world. We said, "Okay, here's your gun, go shoot somebody. We'll plant flowers." We are reaping what we sowed. What we need to do is leave them to their own devices and let them figure out what they want to do. It's our presence in the Middle East that is creating a problem.

    TGR: Will stepping back allow the Middle East to heal itself, or will there be continued civil wars that threaten the world?

    BM: We are the catalyst in the Middle East. We have been the catalyst under the theory that we are the world's policemen and that we're better and smarter than everybody else and rich enough to afford to fight war after war. None of those beliefs are true. The idea that America is exceptional is hogwash. We're not smarter. We're not better. We're certainly not effective policemen.

    The Congress of the United States has been bought and paid for by special interest groups: part of it is Wall Street, part of it is the banks and part of it is Israel. We're just trying to do things that we can't do. What the U.S. needs to do is mind its own business.

    TGR: You've commented recently that you're expecting a stock market crash soon. Can you elaborate on that?

    BM: We have two giant elephants in the room fighting it out. One is the inflation elephant and one is the deflation elephant. The deflation elephant is the $710 trillion worth of derivatives, which is $100,000 per man, woman and child on earth. Those derivatives have to blow up and crash. That's going to be deflationary.

    At the same time, we've got the world awash in debt, more debt than we've ever had in history, and it's been inflationary in terms of energy and the stock market. When the stock and bond markets implode, as we know they're going to, we're going to see some really scary things. We'll go to quantitative easing [QE] infinity, and we're going to see the price of gold go through the roof. It's going to go to the moon when everything else crashes.

    TGR: How are you looking at the crash-short term, like before the end of this year? How imminent are we?

    BM: Soon.

    TGR: Are you in or out of the market?

    BM: Oh, I'm in. Not in the general market, but I'm in resources. There's a triangle of value created by a guy named John Exter: Exter's Pyramid. It's an inverted pyramid. At the top there are derivatives, and then there are miscellaneous assets going down: securitized debt and stocks, broad currency and physical notes. At the very bottom-the single most valuable asset at the end of time-is gold. When the derivatives, bonds, currencies and stock markets crash, the last man standing is going to be gold.

    TGR: So the last man standing is the actual commodity, not the stocks?

    BM: Not necessarily. The stocks represent fractional ownership of a real commodity. There are some really wonderful companies out there with wonderful assets that are selling for peanuts.

    TGR: In one of your recent articles, "Black Swans and Brown Snakes," you were tracking the U.S. Dollar Index as it climbed 12 weeks in a row, and you discussed the influence of the yen, the euro, the British pound. Can you explain the U.S. Dollar Index and the impact it has on silver and gold?

    BM: First of all, when people talk about the U.S. Dollar Index, they think it has something to do with the dollar and it does not. It is made up of the euro, the yen, the Mexican peso, the British pound and some other currencies. When the euro goes down, the Dollar Index goes up. When the yen goes down, the Dollar Index goes up. The dollar, as measured by the Dollar Index, got way too expensive. It was up 12 weeks in a row. On Oct. 3, it was up 1.33% in one day, and that's a blow-off top. It's very obvious in hindsight. I took a look at the charts for silver and gold-if you took a mirror to the Dollar Index, you saw the charts for silver and gold inversely. When people talk about gold going down and silver going down, that's not true. The euro went down. The yen went down. The pound went down and the value of gold and silver didn't change. It only changed in reference to the U.S. dollar. In every currency except the dollar, gold and silver haven't changed in value at all since July.

    The U.S. Dollar Index got irrationally exuberant, and it's due for a crash. When it crashes, it's going to take the stock market with it and perhaps the bond market. If you see QE increase, head for your bunker.

    TGR: Should I conclude that gold and silver will escalate?

    BM: Yes. There was an enormous flow of money from China, Japan, England, Europe in general into the stock and bond markets. What happened from July was the equivalent of the water flowing out before a tsunami hits. It's not the water coming in that signals a tsunami, it's the water going out. Nobody paid attention because everybody was looking at it in terms of silver or gold or platinum or oil, and they were not looking at the big picture. You've got to look at the big picture. A financial crash is coming. I'm not going to beat around the bush. I'm not saying there's a 99% chance. There's a 100% chance.

    TGR: Why does it have to crash? Why can't it just correct?

    BM: Because the world's financial system is in such disequilibrium that it can't gradually go down. It has to crash. The term for it in physics is called entropy. When you spin a top, at first it is very smooth and regular. As it slows down, it becomes more and more unstable and eventually it simply crashes. The financial system is doing the same thing. It's becoming more and more unstable every day.

    TGR: You spoke at the Cambridge House International 2014 Silver Summit Oct. 23-24. Bo Polny also spoke. He predicts that gold will be the greatest trade in history. He's calling for $2,000 per ounce [$2,000/oz] gold before the end of this year. We're moving into the third seven-year cycle of a 21-year bull cycle. Do you agree with him?

    BM: I've seen several interviews with Bo. The only problem with his cycles theory is you can't logically or factually see his argument. Now if you look at my comments about silver, gold and the stock market, factually we know the U.S. Dollar Index went up 12 weeks in a row. That's not an opinion; that's a fact. I'm using both facts and logic to make a point.

    When a person walks in and says, okay, my tea leaves say that gold is going to be $2,000/oz by the end of the year, you are forced to either believe or disbelieve him based on voodoo. I don't predict price; I don't know anybody who can. If Bo actually can, he's going to be very popular and very rich.

    TGR: Many people have predicted a significant crash for a number of years. How do you even begin to time this thing? A lot of people who have been speculating on this have lost money.

    BM: That's a really good point. People have been betting against the yen for years. That's been one of the most expensive things you can bet against. Likewise, people have been betting on gold and silver and they've lost a lot of money. I haven't made the money that I wish I'd made over the last three years, but I've taken a fairly conservative approach and I don't think I'm in bad shape.

    TGR: Describe your conservative approach.

    BM: The way to make money in any market is to buy when things are cheap and sell when they're dear. It's as simple as that. Markets go up and markets go down. There is no magic to anything.

    TGR: When Agnico Eagle Mines Ltd. (NYSE:AEM) purchased Cayden Resources Inc., it prompted a flurry of conversation about possible acquisitions. What do you think about that strategy, and do you have any companies that you're looking at as possible targets?

    BM: It's very funny that you talk about Cayden because I was writing about Cayden at $0.72 a share, talking about how wonderful it was. Agnico Eagle came in and offered Cayden about $3/share. I think anybody buying Agnico Eagle shares is going to make as much money as the investors who bought Cayden's shares at $0.72. Agnico Eagle is going to make a lot of money.

    TGR: If these companies are so cheap, why aren't we seeing more acquisitions?

    BM: We are seeing acquisitions. The really funny thing is everybody's ignoring them because they say, "Oh my God, my gold went down. I don't want to buy gold any more. I don't want to own it," which is stupid.

    TGR: Hard to argue with that. Bob, thanks as always for sharing your candid insights.

    BM: Happy to be here.

    This interview was conducted by Karen Roche of The Gold Report and can be read in its entirety here.

    Bob and Barb Moriarty brought 321gold.com to the Internet over 10 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 820 missions in Vietnam. He holds 14 international aviation records.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Karen Roche conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) Bob Moriarty: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned: Novo Resources Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over what companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    3) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert can speak independently about the sector.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Oct 29 1:58 PM | Link | 1 Comment
  • Oliver Gross Says Peak Gold Is Here To Stay

    The wave of zero-interest liquidity washing over the financial world could result in a short-term gold bottom of $1,000 per ounce, reports Oliver Gross of Der Rohstoff-Anleger [The Resource Investor]. The good news is that Peak Gold is here to stay, which means that midtier producers will soon be desperate to buy low-cost, high-quality deposits. In this interview with The Gold Report, Gross argues that this could be the opportunity of a lifetime for contrarian investors, and suggests a few best bets to be taken out.

    The Gold Report: Earlier this month, the broader equities markets suffered huge losses as gold made significant gains. Then, after the broader markets recovered, gold fell. Is there now an inverse relationship between the health of the broader markets and the price of gold?

    Oliver Gross: This kind of inverse relationship between gold and the broader equity markets isn't really new. It has been observed since fall 2011, when the price of gold peaked. Since then, gold has fallen more than 35%, while the S&P 500 has risen 70%.

    The current situation resembles the early 2000s, when the broader equity markets were in the final phase of the dot-com bubble, while gold traded as low as $340 per ounce [$340/oz]. Then, of course, the broader equities markets collapsed, while gold rose above $1,900/oz.

    TGR: Some analysts believe that the broader equities market is dangerously overvalued. To give one example, Netflix was recently trading at 144 times earnings. What do you think?

    OG: After a 5+-year bull run leading to new all-time highs in the broader equity markets, there are many signs of bubble formations in the Internet, high-tech and biotechnology sectors. Again, this feels like the early 2000s. The extremely high price-to-earnings ratios in stocks such as Netflix indicate investor euphoria and huge amounts of speculative capital provided by the central banks.

    It is shocking to compare valuations in the broader sectors of the equity markets to valuations in the precious metals space. Alibaba (NYSE:BABA) has a market valuation of more than $220 billion [$220B]. This company, with sales of less than $10B, is now worth far more than the 10 largest gold and silver producers put together. We see similar speculative booms with Facebook, Amazon, Tesla and Apple.

    TGR: How should investors react to this bubble?

    OG: Speaking for myself, as one who follows an anticyclical strategy, I like to invest when there is blood in the streets, and that is certainly what is happening with precious metal equities. Today, investors can buy gold and silver stocks at decade-low valuations and historically low bullion-to-equity valuations.

    Nobody cares about precious metals equities today, but when the bubble in the broader markets bursts, we will see a massive shift in market sentiment and in the behavior of investors. That said, investors must stick to best-in-class stories and must demonstrate constancy and patience.

    TGR: Could the collapse of the bubble lead to a crisis similar to that which occurred in 2007-2008?

    OG: Yes, the possibility of another Lehman Brothers event is there. When the largest and most influential players in the financial industry want to exit this market, we could see a 2008-like selloff very, very fast. I also think that it is only a matter of time before a further big player in our financial industry will go the same way as Lehman.

    TGR: Geopolitical turmoil today is greater now than it has been for quite some time: Gaza, ISIS, Ukraine and now Ebola. Traditionally, this would have resulted in a significantly higher gold price, which has not happened. Is what we have seen this year an anomaly, or is the price of gold no longer affected by external events?

    OG: That is a question not easily answered. Traditionally, gold has been regarded as the ultimate crisis protection, so geopolitical turmoil usually resulted in a higher gold price. What has changed is the incredible power of the central banks. They have changed the rules of the game. This is a major financial experiment with no historical precedent. The combination of unlimited liquidity, historically low interest rates and historically high debt levels has, for the moment, mitigated geopolitical risk factors and guaranteed faith in the U.S. dollar as the world's reserve currency.

    Gold has fought incredible odds since fall 2011. It is the most hated asset class, the official enemy of the U.S. dollar reserve and our global monetary system. And so the biggest financial institutions have no interest in higher gold prices. They still control the gold futures and the paper-gold market, so it is easy for them to attack the gold price. But this can't continue forever, and it's just a matter of time before all the money created since 2008 will no longer simply inflate asset bubbles. Inflation will return, and gold will again respond positively to external crises.

    TGR: Where do you see gold and silver prices going in the short term?

    OG: I see a 50% chance of a final panic selloff across the gold and silver space. In this scenario, gold could fall to $1,000/oz, and silver could fall as low as $12/oz.

    TGR: Wouldn't such prices lead to widespread curtailment of bullion production?

    OG: The current all-in costs of gold producers are now above $1,150/oz, even after massive cost reductions and a focus on higher-grade mining. Such expedients can have only a temporary effect. At a gold price of $1,000/oz, there will be many shutdowns.

    We need a gold price of at least $1,400/oz to support sustainable production, and that number will rise, as early as 2015 or 2016. We have reached Peak Gold, and it's here to stay. The highest-grade and most-profitable deposits are gone. The bear market in the gold mining space has been so long and painful that the major producers have their backs to the wall. Barrick Gold Corp. (NYSE:ABX), Newmont Mining Corp. (NYSE:NEM),Goldcorp Inc. (NYSE:GG), AngloGold Ashanti Ltd. (NYSE:AU) and Kinross Gold Corp. (NYSE:KGC) have dramatically cut exploration and development budgets.

    Most discoveries of the last five years need a far higher gold price to be mined. In addition, many recent discoveries are located in jurisdictions with high country or environmental risks and lack infrastructure, resulting in multibillion-dollar capital expenditures [capexes].

    TGR: As a result of the factors you've mentioned, can we now expect a big increase in mergers and acquisitions [M&As]?

    OG: Not so much among the majors. Most of them have weak balance sheets and too many in-house projects to risk expensive and dilutive takeovers. I see only Goldcorp and Newmont as potential bidders among the majors. Goldcorp lost the Osisko takeover battle to Yamana Gold Inc. (NYSE:AUY) and Agnico Eagle Mines Ltd. (NYSE:AEM), while Newmont refused to merge its Nevada operations with Barrick's. So Goldcorp and Newmont might attempt different takeovers when the time is right.

    TGR: What are the attributes possessed by those companies likely to be taken out?

    OG: When the influential players in the gold mining space think that the gold price bottom is in, and a new bull market is likely, M&A interest will grow big time. Such a consolidation could create a perfect storm for the strongest junior gold producers and quality gold developers with robust, competitive projects.

    Specifically, takeover targets will have financeable mine capexes with a good relation to the discounted net present value [NPV] of their projects. They will be profitable with gold at $1,100/oz, and at least break even at $1,000/oz. Their projects will be in pro-mining jurisdictions with stable laws, the sustainable support of regional and local communities, and solid infrastructure.

    TGR: What about management?

    OG: Takeover targets must have managements with strong track records, or, failing that, existing investment from the larger precious metals companies or previously successful strategic investors. And, of course, healthy financials. There are many evaluations to be made, and there aren't any "no brainers" here. Due diligence and continuous research are critical. When you think you haven't spotted any weaknesses, you've likely missed something.

    TGR: Which gold junior or mid-cap gold producer is your current favorite?

    OG: I like B2Gold Corp. (NYSEMKT:BTG) at this price level for many reasons. First, I like its takeover of Papillion Resources and its Fekola project in Mali. Fekola will be a very large and very profitable gold mine. Second, I like its CEO Clive Johnson, whose team has built one of the fastest-growing gold producers in one of the toughest environments ever. Third, B2Gold has three operating mines: two in Nicaragua, which are running smoothly, and one in the Philippines. Fourth, it has a diversified portfolio of attractive gold projects with massive growth potential.

    B2Gold has proved it can succeed in difficult regions and, despite the collapse of the gold price, has maintained strong cash flow and a strong balance sheet. Its gold production has grown from 158,000 oz [158 Koz] in 2012 to about 400 Koz this year, with operating costs of around $680/oz and all-in sustaining costs of $1,025-1,125/oz. After its Otjikoto Mine in Namibia ramps up, production should hit 580 Koz in 2016, and after Fekola ramps up, production could reach an amazing 900 Koz in 2017. B2Gold is on the verge of becoming a major gold producer and a lucrative takeover target.

    TGR: Moving on to copper, we've seen three companies with advanced projects taken out this year: Lumina Copper Corp., Augusta Resource Corp. and Curis Resources Ltd. Who's next?

    OG: There aren't many attractive cooper projects left that are controlled by junior miners. I'll name two. The first is Reservoir Minerals Inc.'s (OTCPK:RVRLF) [RMC:TSX.V] Timok project in Serbia. This contains a large deposit with extremely high copper and gold grades, so much so that copper major Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) will pay for Timok all the way to a bankable feasibility study in exchange for 75%. That means zero cost for Reservoir with unlimited exploration and development potential. As Reservoir owns a very large, diversified and promising project portfolio next to many active mines in Serbia, and Freeport always targets large world-class deposits with attractive locations, I think it's more than obvious that Reservoir will be taken over by Freeport, perhaps sooner than later.

    TGR: You are now more bullish on uranium companies, correct?

    OG: Uranium prices have just enjoyed their first recovery in years. We may have seen the bottom here, so I think investors should put uranium stocks back on their watchlists.

    TGR: Who are the likely suitors?

    OG: As the construction of major new uranium mines is so expensive, I see only Rio Tinto Plc (NYSE:RIO), Cameco Corp. (NYSE:CCJ) and AREVA SA [AREVA:EPA] as potential bidders.

    TGR: Is there an American uranium play you like?

    OG: Assuming a real turnaround in the uranium space, my long-term bet would be Uranium Energy Corp. (NYSEMKT:UEC), which offers one of the greatest leverages out there and has one of the best management teams. The company controls a large, well-advanced and much-diversified project portfolio in Texas. This company needs a higher uranium price to really move forward, but this is true for the whole industry. Uranium Energy could become a significant uranium producer, and is the only substantial uranium story in the U.S.

    TGR: Finally, given that so many current investors in gold companies want out, does the M&A flurry you've suggested offer a special opportunity for contrarians?

    OG: Absolutely. Both specific and general valuations are among the lowest for the last 30 years, so this could be the most attractive environment for contrarian investors in a couple of generations.

    TGR: Oliver, thank you for your time and your insights.

    This interview was conducted by Kevin Michael Grace of The Gold Report and can be read in its entirety here.

    Oliver Gross is a passionate resource expert, prudent investor and adviser with more than 10 years of experience in the mining and junior sector. He is the chief editor and analyst of the newsletter Der Rohstoff-Anleger [The Resource Investor], which specializes in the global junior resource sector. It is backed by the GeVestor Financial publishing group, the largest online publishing house in Germany.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) Oliver Gross: I own, or my family owns, shares of the following companies mentioned in this interview: Uranium Energy Corp. and Yamana Gold Inc. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Uranium Energy Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    3) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Goldcorp Inc. and Franco-Nevada Corp. are not affiliated with Streetwise Reports. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
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